‘Buy IDDM’ and ‘Make’ the drivers for ‘Make in India – Defence’

The article elaborates on the nuances of the ‘IDDM’ and ‘Make’ categories of the DPP and the challenges and opportunities

Author:

Lt Gen Subrata Saha, PVSM, UYSM, YSM, VSM** (Retd)

Friday, July 21, 2017

The foreword to the Defence Procurement Procedure (DPP) -2016 highlights that, “DPP-2016 has introduced specific provisions that will act as a growth stimulus to the domestic defence industry. In order to promote indigenous design and development of defence equipment, DPP 2016 has introduced the Buy-IDDM (Indian Design Developed and Manufactured) category of acquisition and accorded it the top most priority”. The foreword further states that the DPP 2016 also provides greater impetus to the MSMEs with certain category of Make projects reserved exclusively for them.

The preamble to the Defence Procurement Procedure emphasises that, “DPP focuses on institutionalising, streamlining and simplifying defence procurement procedures to give a boost to ’Make in India’ initiative of the Government of India, by promoting indigenous design, development and manufacturing of defence equipment, platforms, systems and sub-systems. ‘Make’ procedure has also been refined to ensure increased participation of the Indian industry. Enhancing the role of MSMEs in defence sector is one of the defining features of DPP.

Clearly the DPP 2016 visualised the Buy IDDM and Make procedure as the drivers for ‘Make in India – Defence’ and the MSMEs to be important contributors to the mission. It’s been 15 months since the promulgation of the DPP 2016; hence a review of progress on these counts should be in order.

Buy - IDDM

The Buy - IDDM: is a new category introduced in DPP 2016. This category refers to the procurement of products from an Indian vendor meeting one of the two conditions: products that have been indigenously designed, developed and manufactured with a minimum of 40% indigenous content on cost basis of the total contract value; or products having 60% indigenous content on cost basis of the total contract value, which may not have been designed and developed indigenously.

The onus of proving that the equipment design is indigenous is placed on the vendor, with a caveat that the claims would be verified by a committee comprising scientists from DRDO and representatives from Service Headquarters (SHQ), based on documents issued by authorised agencies and presented by the Vendor. The process of verifying the availability of indigenous design and development is required to be completed prior to fielding of statement of case for categorisation. According to the DPP 2016, guidelines pertaining to the same were to be issued by the DG (Acquisition) with inputs from DRDO.

The category, Buy IDDM, although intended to be the top most priority has not been utilised so far by the private industry, pending issue of guidelines for claiming and verification of indigenous content.

DPP 2016 ‘Chapter III – Make’ the Soul of ‘Make in India’

Particularly in the field of Defence, ‘Make in India’ should lead to ‘Made in India’. The Make procedure thus becomes the soul of this mission that should ultimately enable the military capability of the nation to be built on true ‘self-reliance’.

With a sharp focus towards this vision, for the first time through the year 2016 and 2017, Indian Army undertook an extensive outreach program to connect with indigenous Industry and academia. The Army team conducted 19 bilateral Army – Industry interactions at various industry hubs across the country. In addition 13 trilateral Army – Industry – Academia interactions were held in IITs, IISc and other institutes of excellence. The aim of these interactions was; “to promote an understanding of the modernization requirements of the Army and concomitantly discover capabilities of the Indian industry. In the trilateral Army – Industry – Academia interactions an additional aim was to discover academic activities that could be aligned to meet future requirement of the Army”.

An underlying inspiration was the realization that the Army’s requirements are comparatively most suited for ‘Make in India’. The reasons being;

• The range of requirements of the Army is wide and volumes very high.

• The cost of the equipment/solutions required are lesser e.g. at any given time approximately 40% schemes of the Army are valued at less than Rs.150 crores, enabling wider participation including the MSME.

• The technological requirements of the Army are relatively easier to achieve as compared to the other two services.

• Many of the requirements of the Army in counter terrorism operations have common application with other security forces.

The initiative was taken further by organizing display of equipment particularly imported, for the Industry and Academia to find indigenous solutions and import substitutes for sustenance and life cycle requirements. Five such displays were held; Ahmednagar for Combat Vehicles on 15 Jul 2016, Coimbatore for Infantry and Artillery equipment on 10 Aug 2016 and Gopalpur for Air Defence equipment on 07 Oct 2016. In the last two displays further value was added by combining fire power demonstrations with equipment display. Field trips for delegations of Professors/Scholars from Technological Institutes and Industrialists were organised to a number of field locations within the country. Several subject specific-seminars too were held in New Delhi.

In order to institutionalise this initiative, the then Defence Minister, Mr Manohar Parrikar accorded approval to set up an Army Design Bureau (ADB) with the role of being “the Facilitator for Research & Development efforts and Initiation of Procurements of Weapons and Equipment required by the Indian Army.” As the first major initiative the ADB released two Volumes of Compendium of Problem Statements comprising 50 and 28 problem statements respectively. These two Volumes cover a wide range of challenges and future technological requirements and research for the Army.

Both the academia and the industry have responded with great enthusiasm by coming up with excellent innovative and forward-looking solutions. Many projects under the IIT program - IMPRINT (Impacting Research and Innovation in Technology) were found to have the potential to be aligned to meet Army’s modernisation requirements. Depending on the Technological Readiness Level of the solution offered they are visualized to be taken up either as technology development projects or as Make Projects under the DPP.

The Make Procedure, as per Chapter III of DPP 2016, becomes particularly relevant in this context as it provides the way forward. Successful development under the Make procedure would, as stated, “result in acquisition, from the successful Development Agency/Agencies through the ‘Buy (Indian – IDDM)’ category”.

The DPP 2016 took a very forward looking step to leverage both the technological potential and investment capability of the private industry by introducing the Make – II (Industry Funded). Effectively the DPP 2016 subdivided the Make procedure into two; Make-I (Government Funded) with 90% Government funding and Make-II (Industry Funded) with no Government funding.

Make-I (Government Funded) Projects would involve Government funding of 90%, released in a phased manner based on milestones of progress of the scheme.

Make-II (Industry Funded) would involve no Government funding for prototype development purposes albeit the orders are guaranteed. As amplified, these are meant to be “Projects involving design and development of equipment, minor platforms, systems, sub-systems, components, parts or upgrades thereof; use of readily available commercial, military or dual use mature technologies, which may involve marginal infrastructure investment for development, integration, test and manufacturing facilities. Import substitution will be a key focus of projects under this category.”

In order to promote MSMEs in the Defence Sector, Make - I projects with estimated cost of prototype development not exceeding Rs. 10 crore, are to be earmarked for MSMEs. Similarly projects under the Make–II sub-category, with estimated cost of prototype development not exceeding Rs. 3 crore, are to be earmarked for MSMEs.

A valid concern of the industry is ‘assurance of orders’ as defence projects require substantial investments. This has been taken care of in the Make procedure which stipulates “If Commercial RFP for the equipment, for which prototype has been successfully developed, is not issued within two years from the date of successful completion of prototype development”, the Industry (Development Agency) will be entitled for reimbursement of development cost, which is 10% in Make–I and 100% of the development cost in Make II.

Following up the new provisions promulgated in DPP 2016 on the Make procedure, the Army conducted a Workshop on 31 Aug 2016 at the India Habitat Centre in which potential Make projects were discussed in detail with the Industry representatives and Academia. These included AFV Protection and Counter Measure, 30mm Ammunition for BMP- 2/2K, Multi Target Tracking System, 3rd Generation Missile for 125mm Barrel in T-72 & T-90 tanks, 1200-1500 HP Engine for tank T-90 S/SK, Assault Track Way Class -24, Advance Pilot Target Aircraft (APTA) etc. Some of these projects have been granted the Acceptance of Necessity (AON), others are in the pipeline.

Way Forward

In order to realise the Government’s intent of promoting indigenous design and development of defence equipment it is imperative that guidelines for verification of claims of indigenous content for Buy IDDM be issued without any further delay. It is plausible that a typical fool-proof verification mechanism is not practical, in which case vendor certification with appropriate guarantees and stringent penalties may be the way forward.

The Make procedure is evidently taking long even in the pre AON stage. The process needs review, particularly the Make-II which is industry funded and is meant for relatively simpler requirements like import substitution for minor platforms, systems, sub-systems, components and does not have to go through the same steps as Make-I.

The current procedures are good for matured technologies but the speed, flexibility and accommodation required for emerging technologies is different. Projects which are in lower order of technological readiness need to be viewed differently from procurement cases. The Services Technology Board projects, DRDO Technology Development Fund projects should do better if they emphasise on research outcomes even if it does not yield a prototype. Failure in research projects should not be a cause for despair or stigma, the experience gained should be constructively used. In fact the ISRO is a good example to follow.

Financial authority needs to be delegated to ensure quicker decisions on sanction of projects. The price for delayed decision is high in terms of time, treasure and technology. Technological cycles are getting shorter by the day, and so is the interest span of the potential inventor and investor.

Strategic partnership and tie up with foreign industries is a good interim solution. It should help in acquiring technologies, improve skills and enhance indigenous capability. In the long run nevertheless to be truly self-reliant and be able to “Win India’s Wars with Indian Solutions” the technology has to develop indigenously. True self-reliance has added importance in our case as our operational environment is highly complex due to diverse terrain, multiple fronts and the strong adversarial potential.

Experience of this extensive and intensive outreach programme shows that there is phenomenal excellence available within the country, albeit distributed in pockets and isolated by silos. Increasing transparency to build common understanding, awareness and trust is a must to achieve cross silo-collaboration between the Academic Centres of Excellence, DRDO, Indian Industry and the Services.